Invest borrowed funds on productive assets, not consumption — AfDB

The African Development Bank (AfDB), has advised African countries, including Nigeria, to ensure that borrowed funds are invested in productive assets capable of generating economic growth and improving living standards.

Prof Kevin Urama, AfDB’s Chief Economist/Vice President for the Economic Governance & Knowledge Management, gave the advice in an interview with our correspondent Abuja on Tuesday.

Urama said this while discussing debt sustainability and financing challenges facing African economies.

He said the issue was not necessarily the volume of debt accumulated by countries, but the quality of debt, its terms and how borrowed resources were utilised.

According to him, the issue for me is not about the quantity of debt. It is about the quality of debt.

”What do you borrow? Where do you borrow from? What are the terms of the loans? And what do you use the money for?”

He noted that debt becomes sustainable when it is channeled into productive investments that would expand economic output, create jobs and improve infrastructure.

The AfDB chief economist warned that excessive borrowing without corresponding productive investments could weaken labour productivity and overall economic performance.

He said findings contained in the African Economic Outlook showed that countries with high debt-to-GDP ratios, often experienced declining debt productivity, which in turn affected labour and capital productivity.

He cautioned against financing long-term infrastructure projects with expensive short-term commercial loans, saying such practices could create refinancing pressures and heighten fiscal risks.

He urged African countries to pay greater attention to debt productivity by ensuring that citizens see tangible benefits from borrowed funds through improved infrastructure and public services.

Urama also called for stronger support for African-led financial initiatives, including the African Financing Stability Mechanism, which aimed to help countries address debt refinancing challenges within the continent.

According to him, African countries need to strengthen cooperation and develop home-grown solutions to reduce vulnerability to external shocks and financial market volatility.